Monday, December 31, 2012

I have enjoyed writing this blog over the last four years. But like all good things, it has to come to an end. I have been writing this blog since November 2008 - almost 2000 posts at this point. It is time to call it a day. Why? A number of reasons.

1. I did what I set out to do, and I'm done.

2. The bog has become a bit of a time-bandit for me.

3. The postings are becoming repetitive and redundant.

4. I am not sure my message is getting across - or could get across - due to human nature.

This last reason is most troubling. The transformation I have gone through in the last five years has not been some sudden revelation on my part, but rather, I think, a transformative change that occurs in most people as they reach a certain stage and age in life. It does not occur in everybody, or at the same age, of course. Many folks never end up "getting it" and go to their graves as angry and destitute middle-class people.

But I think when you reach a certain age, and face retirement and death in the face, you realize that life isn't what you thought it was at age 20, or even age 40. And for many people, this becomes a "mid-life crises" where they get a divorce and spend even more money. But for others, it is a time for taking stock and realizing that the party doesn't go on forever, and what's more, that in a very short time, the earning years will end - and that is a good thing. I don't want to work forever. Or if I do, I want it to be a personal choice not something forced upon me.

If you try to tell a 20-something that spending all their income on pot, beer, cars, cell phones, and other bling is just a stupid waste of money and net worth, you are shouting to deaf ears. Kids want toys, and being "adults" for the first time in their lives, they want to drink deep from the well of life - even if it means borrowing from their future self to do it. They set themselves up for misery later in life and there ain't much that can be done about it.

And when that misery kicks in, at age 30 to 40 - when it seems that they never will get out of debt, and no matter how hard they work, they never seem to get ahead - they will blame others rather than look inward at their own malfeasance. It is Wall Street's fault! It is the Big Corporations! Nothing you can say will convince them that their credit card debt was a result of their own life choices - chasing after frequent flyer miles instead of low interest rates. And their four years of Party U. that was paid for by student loans? Has to be someone else's fault - along with that onerous "funny money" mortgage they signed. Right?

It is simple human nature. It isn't about to change. A very few people might "get it" - but not many. I know I didn't, until about age 50. I thought, like most Americans, that chasing after "things" was the point in life, and that having nice stuff meant you were wealthy. I was wrong.

A reader e-mailed me when I announced I was ending the blog and said, "Congratulations for not falling into the blog trap!" which I thought was an interesting comment. A blog can be a trap - a time bandit that sucks up all your energy and starts to lose focus. And after a while, it just peters out - as so many do that I have seen - and people forget about them or abandon them. Better to leave intentionally than to just give up. Better to leave on a high note, as Seinfeld would say.

And who knows? Maybe I can organize and revise these better postings into a more coherent narrative and put them into e-Book on Amazon or something. It would be a better use of my time. I did not "monetize" this blog as the sorts of side-bar ads that would appear would be for the worst sort of odious deals that I rail against. And that is one thing I am proud of. This blog, for better or worse, is not just some Search Engine Optimized "content" designed to generate click-through revenue - like so much of the crap on the Internet today. And I may revisit some of these postings and "polish them up" a bit, correct typos and misspellings, dead links, and whatnot.

Writing this blog has improved my writing skills and typing ability, both of which were no slouches to begin with. While I could do about 60-80 wpm before, I am hitting 100 wpm on occasion, and fully "touch-typing" today, not looking at the keyboard at all. It is helpful for my career, which involves a lot of writing.But what about the journey, and what have I accomplished? When I started this blog, I was in debt. I had been in debt a lot, having well over a million dollars in mortgage debt at one time. But that was for investment properties, most of which I sold before the market crash (my office building sold in 2008, after the crash, but I still realized a $400,00 capital gain from that, which is rally what precipitated the crises that started me down this road).

I realized that I made a lot of money in life - millions in fact. Most people do, even at a $50,000 a year job, you will make over a million dollars by the time you retire. But where did it all go? Here I was, 48 years old, having made a ton of money and still in debt. I had a mortgage on my home, another on my vacation home, and thanks to a capital gains fiasco, I had a $40,000 credit card bill to pay off.

At the same time, I owned two boats, five cars, a jeep, an RV, an antique tractor, and a host of other "things" all of which were very nice things, and were "paid for" but were in fact costing me money. The taxes alone on my two homes were costing me $10,000 a year. I was spending another $5000 a year on homeowner's insurance. I was paying $500 a month on life insurance policies. I was still making the final payments on my student loans! And I was paying for two internet connections, landlines, cell phones - all sorts of stuff.

And foolishly, I did not rent out my vacation home to help cover some of these costs.

That is where the money all went. It went to lots of little expenses, lots of little purchases, and a lot to interest payments on credit cards and mortgages.

And then of course, the market crashed. My income dropped as the economy collapsed. While I had a good amount in savings, I saw much of this cut in half by the recession. And while I could "keep all the balls in the air" with a high income, as my income declined, it became readily apparent that I was burning through savings to pay expenses.

Something had to be done - and should have been done a long time ago. I realized that while I could "afford" fancy cars and vacation homes and boats, having all of them at once was just too much. And it was too much work, as well. Mowing five acres of lawn took hours every week. And changing the oil on five cars? Winterizing two homes and two boats? Forgetaboutit! I realized that I was a slave to possessions - they owned me, I didn't own them.

It is possible, in this country, to live the life of what in the past would have been a rich man, on a middle-class salary today. But maintaining all that sort of stuff is where it all breaks down. Really rich folks can afford to hire people to paint their mansions and maintain their fancy cars. When we have to pay someone to do these things, that is where we run out of money.

I started by cutting expenses - to the bone. I cut my homeowner's insurance costs in half, merely by shopping around and going to higher deductibles and lower coverage. I cut my life insurance down to zero by converting policies to paid-up status (and they now pay me every year instead). I shopped our cell plan, our landline, our internet services. I looked at every area of spending - our food, our clothing, our utility bills. And I realized that there was no one area of "waste" in my life, but rather a lot of spending a little too much here and a little too much there, that added up to a lot of money over time. You stop watching the little things and they become large things in short order.

Just saving $10 a day, for example, adds up to $3650 a year, which if invested, would be a couple hundred thousand in retirement. And for most folks, this "sacrifice" might mean little more than packing your own lunch or not buying a Starbucks. And yet many middle class people say they can't afford to save!

And credit cards! I got rid of the high-interest-rate ones and rolled them over into low-rate cards and then paid them off. It was difficult, and it took years to bring the balance down. How I allowed myself to get into that debacle, still eludes me. What was I thinking, signing a loan document at 14.5%?

I tried early on to save my lifestyle - which proved to be pointless. While I was able to cut costs, the expense of owning so much "stuff" was still considerable. Cars need repairs over time. Antique Tractors strip a camshaft gear. And while I always wanted to rebuild a flathead Ford, it is better to do such things at a time and place of your own choosing, rather than to be forced to do it as the lawn gets higher and higher.

But pride goeth before the fall. And we see this all the time in the recent meltdown - people wanting to hang on to upside-down mini-mansions and luxury cars, rather than be perceived as "giving up" by their neighbors. We see this all the time here on Retirement Island - people getting reverse mortgages so they can "hang onto their homes" even if they really would rather downsize to something simpler and easier to maintain as they get older. The reason? They don't want to be embarrassed in front of people they don't even know or care about and be perceived as "poor".

Myself, after owning eight homes over the years, realize that a house is just that - a house. And since none of the houses I owned were Frank Lloyd Wright homes, they were not worthwhile making into showplace estates. You can make the perfect lawn - as my neighbors have done - but who really cares that you have made a bland and inoffensive tract home look tidy? No one. And yet that will be the epitaph of many an older man - "He had a really nice lawn."

We were growing tired of maintaining two homes, too. It was a lot of work. And frankly, while it is fun to go on vacation, it is not necessarily fun to go on vacation every year to the same place, and spend half your time on home maintenance. Houses, like cars, don't like to "sit" unoccupied, and vacation homes have special troubles of their own, just from sitting.

So we bit the bullet and sold it - at a loss, of course, the first time in our lives we lost money on Real Estate. We sold the boats, we sold the cars, we sold the tractor, the Jeep. It wasn't sad to see it all go. It was liberating. And most people will never have the experience of going into the bank and depositing a check for a half-million dollars - to a befuddled bank-teller in training who had to call the manager.

And paying off the mortgage and that remaining credit card debt? Priceless. It was like, well, ecstatic. Like 100 orgasms in a row, that first acid trip, or whatever. The idea that you had no debt whatsoever was as liberating as, well, liberation. I was, for the first time since I was 21, no longer a slave to debt.

But it hasn't ended there. I realized that while knocking $30,000 a year out of my budget was good, there were still a lot of expenses in my life - homeowners insurance, car insurance, utilities, property taxes, and the like. It still costs $1000 a month just to live in a house "free and clear" here. And maybe, someday down the road, we will sell this place and move to something smaller and easier to care for - so we can do things rather than own things. When building our pottery studio, we realized that you can build a nice house for not a lot of money - and not need a lot of room to live in. A simple Park Model home, for example, might be all we need. Who knows?

As 2012 winds down, the world is more uncertain than ever, but appears to be headed for recovery. What will happen is anyone's guess. But today, we are prepared for the worst far better than we were in the past. We have no mortgage to go upside-down on, and we don't have to worry about making X number of dollars a year to get by, as our personal life expenses are down to nil. If we make more than that, we can spend the money on doing things rather than owning things and we look forward to that a lot. For example, renting a 40' yacht in June of this year, in France for a week. It will cost less that the storage and insurance costs on our 28' boat for one year. And I don't have to change the oil or grease the outdrive, either!

And the most wonderful thing of all is that I could retire right now, if I had to, as I have enough money to retire. How did I do that? Simply by lowering my lifestyle costs. If I can live on $50,000 a year, as opposed to $150,000 a year, the money I have in the bank can go a long, long way. More than three times as far, in fact.

I suppose some of the old habits may creep back, over time. Perhaps. It is inevitable. As we make more money, we tend to spend more - Boyle's law at work. But I doubt I will be going back to a barbershop and spending $20 on a haircut - for the rest of my life - as we now have these hair clippers. And I doubt I will ever set foot in a Starbucks again - now that we are drinking tea (and coffee today just gives me horrific cramps). And while we may visit the Harris Teeter for their Indian Food Section, we still shop at Wal-Mart for their inexpensive crackers, cheese, and other staples.

The battle is never over, and the marketplace is a battlefield. You have to fight the merchants and purveyors all the time. And moreover you have to fight yourself - your own urges to "have it all now" and want the latest shiny, shiny, instead of having less "junk", saving more, and having real wealth.

So, dear reader, if you got something out of this blog, I am happy. But as I noted when I started it, I wrote this blog for my own purposes - to turn my own life around. Writing about something tends to reinforce ideas, and the more you pound these ideas into your own head the more you program your brain with positive normative cues.

If I can leave you with one thought, that would be it. Stop watching television, the media, and the advertisements that all pound poor normative cues into your head. You don't need to be "up to date on the news!" other than the weather. And obsessing about politics is a bad idea. Concentrate on your own life and what you want out of it. Unplug from society's expectations. Stop worrying about what other people think of you, and worry more about what you think of yourself.

Be happy. It isn't hard to do in this country, and sadly, so few do it.

On the Internet, you see people trolling and grooming and posting messages about how awful things are. This is nothing new, we've seen it in real life since time began. During every economic recovery I have lived through, there were legions of people willing to tell you how awful things were and why everything was so rotten. These are called depressed people and you shouldn't listen to them.

During the 1950's, we had a huge post-war recovery and our nation was prosperous. But to listen to some folks, it was an awful time, what with nuclear annihilation, the cold war, and youth gangs and all. The fabulous fifties, according to some, were a dark and dreary time!

And during the 1960's, the economy boomed again. But if you listen to some folks, their only impression of the 1960's was race riots, assassinations, and the Chicago 7. Yea, bad things happen - they always do, you know. But a lot of great things happen as well. People seem to forget the latter.

The 1970's? Well, they did kind of suck. Nixon resigned in disgrace, we made a hasty exit from Vietnam, stag-flation and oil embargos paralyzed the country, and Jimmy Carter was President. But you know what? We still drove off to work every day - in our crappy 70's cars - and people still had a lot of fun. I know I did. I spend most of my time water-skiing and smoking pot. There are worse ways to sit out a decade.

In the 1980's, the economy slowly recovered - but the naysayers would have you think that "Reaganomics" killed off all economic activity of that decade. The opposite was really the truth. Gas prices eased and salaries shot up. Things were looking up and people were doing well.

The 1990's, of course, were the Clinton years. And you may think he was a failed President for getting a blowjob in the oval office, the economy prospered and frankly, I made a ton of money during that decade.

the 2000's were marked by our war on Terror - but it is a war we have largely won. While we may never wipe out all these terrorist groups (any jackass with a stick of dynamite and two friends can start another one), I think we proved that the "threat" of Al Quaeda can be kept tamped down. And the economy roared again - and then tanked (as it did in 1959, 1973, 1980, 1992 and in 2001 - perhaps ends-of-decades are a good time to dump stocks!). But by 2010, it was starting to recover.

And today? Well, the recession has been officially "over" for over two years now. The definition of "recession" is when an economy shrinks, not expands. And we are expanding - nice and slowly, thank you, which personally is the way I think it should be. The slower the expansion, the longer the recovery will last. Rapid expansion is usually followed by rapid and more severe decline.

Unemployment is down, housing starts are up, existing home sales are up, home prices are up, foreclosures are starting to ebb, unemployment is down. And it will get better, too, once we stop extending "unenjoyment" indefinitely and people realize that they aren't getting that overpaid job back, ever again - and take a job they are actually entitled to.

And the stock market? Way up over this time last year. In fact, I made more on my investments this year than I did in ordinary income from work. My investment portfolio went up 13% since December of last year, which is not a bad annual rate of return. Will this continue at this rate? Well, we have already seen a drop of a couple of percentage points due to Boehner's boners. But like July 2011, we will bounce back from this, eventually.

My life insurance went up a nice 5.7% which today is considered a good rate of return. And while my income reached a nadir in the summer of 2012 (partly because I took a two-month vacation), my income is ticking up for 2013, and looks to be pretty good for the new year.

And my debt load is pitiful. I am carrying a small balance on my business credit card ($2000) for some filing fees owed to me by a client, but that is about it. No mortgage, no car loan, no staggering monthly payments to make. Even if the shit hits the fan, I'm set - or at least better off that I was four years ago.

In other words, not only are things not all that bad, they are pretty freaking good, compared to say, 2008.

But no one wants to admit to that. Why is this? The political types want to say everything is rotten, so they can blame political opponents. This is how you gain power and leverage in a political debate. And both parties do it, although the GOP, being the party out of power, does it more lately.

And people like to feel sorry for themselves - wallow in self-pity. It feels good to feel bad, sometimes, and we all like to indulge ourselves, from time to time. But some folks take this too far, and it blows up into a full-blown mental depression, and nothing you can say will make them think otherwise.

In fact, good news is bad news to such idiots. You tell them that the stock market is up, and they say, "Well, wait for the double-dip recession! I read about it on a website!" Or you say that housing sales are up, and they argue, "Well, that is only because the banks are holding back on foreclosures!" For every piece of good news, they have some long-winded and improbable theory as to why it is actually bad news.

And the way economies work - the way human nature works - things will get better and then get worse. This isn't the last recession you will see in your lifetime or the life of mankind. So the naysayers can always say, "I told you so!" even if they have to wait a decade or more for their negative dreams to come true.

But more to the point, life is what it is, regardless of your credit score or the level of the Dow, or who is in the White House. A beautiful day in the park doesn't have a score or level or credit, and never goes into recession or recovery. You have to look at life like a customersometimes, and appreciate it when it is beautiful and not worry so much about nonsense like jet ski payments and new apps for your cell phone.

2013 will be a good year - regardless of the debt ceiling, the fiscal cliff, the stock market, or unemployment rates. Whether you enjoy life or not has a lot less to do with money than you think.

But even if you measure your life in terms of dollars and cents, 2013 seems poised to be a pretty good year, no matter how you slice it.

Sunday, December 30, 2012

The media is baiting us on Fiscal Cliff horror stories, to get us to watch television and to get us to click on stories. The political parties are also using this man-made crises to try to get us all riled up. Don't be. Things are not as bad as all that.

In a day or two, we will launch off the "Fiscal Cliff" which sounds scary, but is not as bad as people are making it out to be.

As I noted in an earlier posting, the only real effect of this "Fiscal Cliff" is to go back to the tax rates of the Clinton Administration (when the country was doing very well, thank you) and to cut government spending across-the-board, which is what we should be doing, anyway.

Cutting, that is, except Social Security and some other entitlement programs, which ironically are what the politicians are arguing should be cut, so we can preserve defense spending. Frankly, for the average citizen, the cliff is a better option. Bear in mind that we spend more on defense than the next ten largest countries - and you get an idea that we can afford a few cuts without being "weak on defense".

So the media continues to crank up the Fear - to get you to watch. And a lot of "end times scenarios" are batted about in the media, and fortunately, most all of them are outright falsehoods. The media doesn't bother to explain things well, as you get more hits and more viewers with vague explanations and letting people live under misunderstandings.

Besides, television isn't really a media well suited to long explanations of anything. As they say in litigation (or in politics), the first side to go technical, loses. And when you try to explain things clearly, people change the channel.

So what are the myths the media is spreading, either directly or by error-of-omission? Here are a few:

1. If nothing is done by December 31st, we go over the fiscal cliff and this can never be undone, ever, ever, EVER! This is not said outright by the media, but it is implied in every story, and it is the greatest lie never told - as it is an error by omission.

Every media story foretelling gloom and doom is predicated on "If we go off the fiscal cliff" such-and-such could happen - provided that Congress does absolutely nothing for a whole year.

But of course, this is just silliness. While Congress might not agree on a plan by tomorrow, they likely will come to grips with the issue in the coming weeks. It is highly unlikely that Congress will sit on its hands for all of 2013 and do absolutely nothing.

So while the "cliff" provisions might kick in for a week or so, it is likely that Congress will act, and a new budget agreed upon, and many of the tax provisions and the like will be made retroactive to January 1st.

2. If no agreement is reached by December 31st, we will automatically go into a recession. Again, what the media actually reports (and words so carefully that you might miss it) is that some economists predict that we could have a recession if Congress refuses to act for an entire year. Again, this is a far-fetched possibility.

The reality is, the "fiscal cliff" provisions will only kick in for weeks, at most, and this hardly will cause recession. But that doesn't make a story you will sit through five SUV commercials to watch, does it?

Even assuming this absurd scenario occurs, where Congress does absolutely nothing for a year, the tax provisions, as I noted, are the same ones we had during the highest period of post-war growth in this country. And as for reduced government spending, isn't that what the teabaggers wanted all along? Cutting the Pentagon budget by 10% will hardly cripple our military. Cutting anything by 10% will hardly cripple it. In fact, I suspect you would see some creative cost-cutting measures enacted, if various government departments had to really tighten their belts.

3. Milk will cost $8 a gallon after December 31st! This is another alarmist prediction, based on the assumption that dairy price subsidies will jump next year - to 1949 levels. The price of any commodity is based on the demand and supply in the market. In the USA, we are awash in a sea of milk and orange cheese, simply because we have subsidized the production of these two products for so long.

The market determines prices, not the government. If milk goes to $8 a gallon, a lot of people will stop buying it, and demand will go down, which in turn will drive prices down. The net result will be that milk will reach an equilibrium in the marketplace.

If the government is forced to buy milk at inflated prices, this just means the government will end up with a lot of milk on its hands - which may flood the market when the government then tries to unload it.

Efforts to control milk prices really only affect farmers, not consumers. In California last year, a lot of dairy producers went bankrupt as the State tried to control milk prices and as a result, the cost of producing milk was higher than the state-mandated price. Farmers lost money and went bankrupt. The farmers will suffer from dramatic shifts in price supports, but consumers will simply choose to consume other products.

And unfortunately, they already have. Milk consumption is down in the USA - supplanted by cheap soft drinks. Already many Americans are guzzling down cheap soda pop in place of milk. The end of subsidies would likely just accelerate this trend.

And as for cheese, I am not sure that prices would go up that much. Imported cheeses are not that much more expensive that American-made cheeses, so again, this acts as a price-check in the marketplace (unless some milk producers start pushing for higher tariffs). And frankly, the same could happen to milk - we would end up, as the largest milk producing country, importing milk on a large scale.

So, sorry, I have to call bullshit on this one. The price of milk will be determined by consumer demand, not the presence or absence of subsidies. And frankly, we need to eliminate all of these farm subsidies, anyway, as they act as a distorting factor in our so-called "free market." Gub-Ment Chee and Food Stamps have fans in farm country, but they result in a lot of bad food being made.

But of course, all this talk is speculation, as it is unlikely we will go off the "fiscal cliff" for more than a few weeks at most. These price support programs will be re-enacted, unfortunately, and at most, the Dairy farmers may gain wild milk prices - to the government for a week or two. But even this scenario looks to be a little far-fetched. The USDA would have to issue a notice saying it was going to pay the increased price for dairy products, then set up a schedule for when purchases would start, a process that could take a few weeks. And likely, by then Congress will have made a deal and make the reinstatement retroactive to January 1.

$8 a gallon milk? Ain't Happening. People will make other choices.

UPDATE: It appears a compromise has been reached on dairy price supports. Now Congress acts like it did us all a big favor and "saved the day" when in fact the "peril" we faced was one of their own making. Sheesh!

4. People won't know what their tax bills will be! The IRS will be in a panic! People won't be able to file early! Other scary scenarios with exclamation points! Relax, Cletus. It ain't all that bad.

First of all, your 2012 tax rates will be unaffected. So there is no "uncertainty" as to how to calculate your taxes for FY 2012. Tax rates for 2013 will be affected, but you don't have to worry about that return until April 15, 2014.

And for most people, their taxes - if they go up at all - will go up no more than 3%. The upper marginal rates will go up by that amount, but that applies only to income over a certain level, and as such, it may mean less than a 3% increase in your taxes.

Three percent - you think you can handle that? If you can't your finances are in a mess. For poorer people, it is likely they won't pay much more taxes, as most of them don't pay any taxes anyway - their deductions exceed their pitiful incomes as it is.

Yes, Captial gains rates may go up, and some very rich people may have to pay a lot more in Capital gains. Boo-Hoo. But for retired middle-class people cashing in their 401(k) plans, their tax rates will still be at ordinary income rates.

And as I noted before, you can convert ordinary income into Capital Gains and vice-versa. Mitt Romney pays himself in deferred Capital Gains to get a 15% rate. You can bet if it was cheaper, he would become a salaried employee of Bain Capital and convert those Capital Gains right back again.

Companies might pay more dividends, if Capital Gains rates go up. This might be a good thing, as lets face it, Wall Street has been playing the Capital Gains game for so long that Dividends are looked upon as "old school".

But of course, all this talk is speculation, as it is unlikely we will go off the "fiscal cliff" for more than a few weeks at most. Tax rates will likely be "fixed" based on some compromise, and likely this will be made retroactive.

5. Your paycheck will drop as your employer will have to withhold more taxes: This one is also specious, with alarmed teabaggers (the ones who wanted a fiscal cliff in the first place) saying things like, "I don't know what my taxes will be! I won't know whether I can buy a new car or not!"

Your income taxes might go up by 3% if that. And Obama's "payroll tax vacation" will end, and we will start funding Social Security at the full 9% rate. Your paycheck will hardly be cut in half or anything stupid.

Payroll companies have already said they will continue to withhold at the 2012 levels for now. Employers can "make up" any additional withholding later in the year, if need be. But as the Compromise will likely extend tax cuts for the middle class (retroactively to January 1) you won't have to make up anything at all.

So again, no fire here.

* * *

The list goes on and on. Politicans and the Media are both like a child with a toy trumpet. They make noise and want to be heard, and the more you ignore them, the louder they play. "Pay attention to me!" they scream. "What I have to say is important!"

And sadly, we have fallen for this, in recent years - thinking that what the media says is relevant to our daily lives and what politicians do actually controls the economy.

And both parties play this latter game. Republicans like to say that government doesn't create jobs. But Mitt Romney ran on the platform that he was a "jobs creator" - which was a far cry from Ronald Reagan's platform of "get the government out of the jobs business completely!"

Some sort of muddled compromise will be worked out in Washington - it always works that way. The world won't end, and even if Congress decides not to act (which is far-fetched) I am not sure that the result would be all that bad, for most Americans. Our taxes would go up slightly, and government spending would drop by 10%. We would eliminate deficits and people would be forced to go back to work, rather than collect 99 weeks of unemployment.

It is sad, in a way, that the Fiscal Cliff provisions won't kick in for very long. Because they really are a strong dose of medicine that this country really needs.

Saturday, December 29, 2012

There are a lot of hidden costs in buying a car - costs you might not think about while looking at a shiny new car under the bright lights of the dealer showroom. The dealer says you are approved for the loan, but think about other costs before you sign on the dotted line.

We've put 100,000 miles on it, over the last six years, and it is showing signs of age. The end game might not be here yet, but I can see it on the horizon, and I am starting to think about what to replace the vehicle with. As its resale value drops to below $10,000, and as small things start to break and become annoying, it is only a matter of time before we have to buy something else.

But what? And when? Does it make sense to jump ship now, or hang on until the bitter end? The more I started investigating the matter, the more it dawned upon me that there are a lot of "hidden" costs in buying a new or newer car - costs that we don't think about when looking at the shiny dealer brochures.

1. Taxes

In going through my records, what staggered me was the sales tax we had to pay to Florida - a whopping 5% or more, totaling over $1500 just in taxes alone! And yes, $1500 is a lot of money. I have bought cars for less than this.And that is the irony right there. A lot of people will "dump" a used car because it needs $1000 in repairs, and then go out and buy a new (or newer) car and pay $1500 in sales taxes right off the bat.

And the tax man doesn't end his bite there. In many jurisdictions, an annual property tax or ad valorum tax is added to your registration fee, or collected separately. Until recently, in Georgia, we paid this tax - about 1.2% every year, or about $250 on a $20,000 car. In Alexandria, Virginia, we paid "personal property taxes" as high as 4.5% on our cars - which could be well over $1000 a year on even a modest mid-sized sedan.

And you wonder why this "tax revolt" thing has taken hold in the South.....

Your used car, parked in the driveway, requires no sales tax payments. And moreover, since it has a very low "book value" your ad valorum or property tax every year, will be low - and get lower over time.

Here in Georgia, they recently abolished the ad valorum tax and claimed to abolish the "sales tax" on cars. But of course, they just replaced these both with a one-time title tax of a whopping 7%. So on a $20,000 car, you will have to cough up $1400 just in "title tax" before you can drive it home. And yes, $1400 is a lot of money.

(UPDATE: In Georgia, the "sales tax" was only applicable to sales from Car Dealers (you would think this would have boosted private party sales tremendously, but most folks don't think that carefully - and that is why these are "hidden" costs). Effective March 1, 2013, the "Title Tax" will be applied to all car sales, dealer or private, and the Ad Valorum tax will go away for cars titled after March 1, 2013 (according to the radio). However, the Ad Valorum tax will still be applied to cars you own before then. This amounts to about $50 a car for me. However, you may opt to pay the Title tax between now and then, and avoid the Ad Valroum tax perpetually. It appears that an interesting "loophole" exists between now and March 15. If you buy a car from a private seller between now and then, you can pay the 6.6% sales tax but you won't have to pay Ad Valorum tax. Or, if the car is of lesser value, you may opt to pay the Ad Valorum tax, particularly if you are buying from a private seller and don't plan on keeping the car very long. An interesting calculation would have to be made.)

But most people don't think about taxes - or if they do, they think about their Federal Income Taxes, which of all the taxes they pay (if indeed, they pay any) are likely the smallest of any single tax. There are people in the middle class or lower middle class who likely would pay more in sales taxes in any given year than they do in Federal Income tax. But they are all teabaggers and convinced that Obama has "raised my taxes!". Go Figure.

But to people with poor money skills (which was me, until a few years ago) sales tax is sort of a "whatever" kind of thing - the cost of doing business and a trivial few percentage points. And when the tax is 4% or less, I guess we can think that. But in places like Georgia and New York, where the tax is 7% or more, it becomes a big deal - even for small purchases.

Of course, one way to cheat the tax man is to consume less. A $10,000 car has half the tax bill of a $20,000 car, and so on. And this applies to all parts of your life. If you spend a dollar less, the tax man is cheated out of seven more cents. The more you consume, the more taxes you end up paying.

The best used car value is often parked in your driveway - as I like to note, time and again. If you decide to "swap" cars on a regular basis, you end up paying a lot in transaction costs alone, including this sales tax or title tax, or whatever - plus other tag and title fees.

Of course, eventually, all cars wear out, and you have to get something newer to drive. Death and Taxes - they are unavoidable. But the longer you can cost-effectively keep your car, the less you pay in taxes, overall, in your life.

If you have a car that is getting old - but is still serviceable - think about whether you are buying new or newer because you need a new car, or merely because you want one.

2. Insurance

I have very cheap insurance through GEICO. I pay about $16 a month in liability coverage, and if I want it, Collision and Comprehensive is another $17 a month. That's about $420 a year, which is pretty cheap insurance coverage. Most people pay far more than this for car insurance.

GEICO rocks, and their website is very well done. By going online and logging in, I can get a quote on the cost of deleting one car and replacing with another. If I delete the X5 and replace it with a $22,000 Nissan Pickup truck, my insurance will go up by $295.20 a year.

Again, this might not seem like a lot of money to most folks, but it does add up, over time. If you add this to the sales taxes and the ad valorum taxes (if applicable in your jurisdiction), you may be looking at close to $2,000 just in added expenses during the first year - above and beyond the car payments you make.

And this is assuming insurance rates remain constant. The big trap - as I have noted before - for younger people, is to buy a new car, get some speeding tickets or get in an accident (or a DUI), and then see insurance rates spike to $3000 a year or more - sometimes far more. At age 25, you can buy a new car, get a few tickets, and literally go bankrupt.

And those car payments aren't cheap, either. Even at low, low financing rates, you are looking at $400 a month or more for payments on even a modest car. Paying cash may save you a little in interest charges, but it still takes a huge dent out of your net worth.

Again, overall costs trump monthly expenses but most folks only think in terms of the latter.

3. Loan Costs: If you finance a car purchase (new or used) they often tack on "loan document fees" or some other such crap, if you finance through the dealer. Some dealers have the chutzpah to tack on as much as $500 in "document fees" or some such nonsense - if you are dumb enough to pay it.

And of course, you pay interest, although today this is far less than the 10% we used to pay. Even if you can get one of these 2.9% financing deals (which are usually a gag - they tell you that you can't qualify and offer you a higher interest rate) then you end up paying $1509.40 in interest, over five years.

There are other costs, of course. Many dealers charge you a nominal amount for temp tags and licensing the car. They collect a whole bunch of registrations together and then once a week (or month) send a low-paid flunky down to DMV to stand in line for all of them. This saves you time, of course, but you do pay for it. And as likely they will get you new tags, you will pay a new tag and registration fee as well. This can end up costing $100 to $250 depending on the dealer. If you buy a car from an individual or do the tagwork yourself, you may be able to transfer tags and save some money here. But few people do it. Why? Because they are spending $20,000 or more and think that "$100 isn't a lot of money!"

Note that I didn't raise opportunity cost arguments here. A dealer salesman will say stupid things like, "If you pay cash for the car, you are losing the opportunity cost of investing that money!" - particularly when they are trying to lease you a car. The argument makes little sense and can be cut both ways. Buy purchasing the car, period, you are forgoing the opportunity cost of putting $22,000 into your IRA or 401(k), at the rate of $500 a month. Borrowing money to save money is an argument that makes no sense at all.

4. Overall Cost to Your Net Worth.

The main thing people miss, in buying and selling cars, is the overall cost of the transaction, or the dent it puts in your net worth. Let's take a look at the overall transaction costs of keeping the X5 for another five years versus buying the small pickup truck.

If we assume that a vehicle depreciates about 50% in value every five years (which is a rational assumption, as most vehicles fall roughly within this range), the X5 will depreciate about $4500 in five years. The new or newer Nissan pickup will depreciate $11,000 in the same five years.

The sales tax will be 7% or about $1540. Since we don't have ad valorum taxes anymore, we can skip that. But the insurance (at $292.20 per year) will be an additional $1462.50 overall, for five years.

The gas mileage and general maintenance (oil changes, etc.) will be about the same, although some dealers are offering "free oil changes for life" as an incentive to come back to the dealership often, to sell warranty service or to try to entice an owner into a new car. Oil changes are so infrequent these days, and so inexpensive (if you do them at home) that this is not a major expense. But let's throw in $100 a year for oil changes.

Repairs are where things get hard to calculate. It is not possible to precisely predict repairs on an older car. And whether a car will last another X miles is difficult to predict. Usually, what kills off a car is an accident or repair that exceeds resale value. So even a minor collision or an engine or transmission overhaul is enough to send most 10-20 year old cars to the wreckers, in short order. At 140,000 miles, I think we can safely assume that the major components of the X5 will last until 200,000 miles or so, although the engine will likely be using more oil by then.

But the car will likely need a new set of tires ($600 to $1200) before then, and perhaps a new clutch ($1200) as well as other miscellaneous repairs and overhauls (although I have replaced so many parts on the car already, that perhaps the latter is not that great). But let's assume $1000 a year for repairs - which is generous - which would amount to $5000 over five years.

So there is considerable savings in keeping the older car- about $1000 a year. Add in loan interest (if applicable) and you've got another $1500 in the mix. And this calculation was made by generously assuming that repair costs would be $1000 per year. But as a consumer, I have some control over repair costs, as I do a lot of work myself (the front end work cost $700 in parts, whereas a mechanic would have charged over $3000 for such a repair, and the dealer, over $5000) and also I can control repairs to some extent by how aggressively I drive the vehicle. So the savings could be even greater.

When you buy a car, you are jumping on a new depreciation curve. You pay $20,000 for a car, your net worth is decreased by $20,000 and increased by the resale value of the car (usually 10-15% less than the price paid for the car, if bought new). And over time, you use up that car, and eventually end up poorer as a result.

There are a couple of caveats and "But, what about..." kind of things that I am sure that some folks will point out.

1. You'd have to pay the sales tax eventually: Yes, it is true that the X5, like most cars, will go to the boneyard eventually. Even cars that end up as "collectors items" end up going out of service, as they become more talismans of cars than actual cars. People keep an old muscle car in their garage for 40 years, true - but they don't drive it as general transportation, as a general rule.

So it is true that this car will be junked someday, and I likely will "fish further upstream" for a newer car. And at that point, I will have to pay that $1540 in sales tax.

But a tax deferred is a tax denied. If, over your lifetime, you buy 10 cars for $22,000 each, you will pay $15,400 in sales taxes on those cars (at the 7% rate, anyway). On the other hand, if you can buy 9 cars, or eight cars, you will save $1540 for each car you don't end up adding to your collection.

Life is finite, and the number of cars you own is finite. So there is a real savings on deferring a tax, if you can possibly do it. And there is an additional savings in that the money not paid in taxes is money that stays in your 401(k) or could be invested - yielding income over time. And yes, this is an "opportunity cost" argument - but one that makes sense, when you are saving money (car dealers will use "opportunity cost" arguments to convince you to buy, but such arguments are specious at best.)

Similarly, while all cars depreciate at about the same rate (about 50% every five years) the cash amount is less as the car gets older. In your lifetime, if you buy 10 cars for $22,000 each and keep each car for five years, you will spend about $110,000 in depreciation. On the other hand, if you buy 5 cars for $22,000 each, and keep each one for 10 years, you will spend about $82,500 on depreciation - a savings of $27,500 over your lifetime (which is more than most people have in their 401(k)).

2. Reliability: A lot of people say, "Well, I need a car that is reliable as I have to get to work!" And this is true. But reliability and age of a vehicle, while related, do not necessarily go hand in hand.

As I wrote before, the Weibull curve does kick in, over time, and eventually it makes no sense to keep a car forever. Cars wear out and it is time to junk them - eventually. But the reliability thing is, to some extent, a function of how you care for a car and what kind of car it is.

A clunker near the end of its design life, that is treated indifferently, will tend to leave you by the side of the road, on occasion, and this can be inconvenient. But, if you have AAA towing, it need not be expensive. And if you don't panic and throw money at a car, it need not be costly.

During my last trip North, the X5 coolant expansion tank (which is pressurized) started to crack. I noticed the "coolant low" light come on more than once, and after refilling the coolant a few times, I noticed that there was a small crack in the bottle. A quick drive to the dealer and $180 later I had a new coolant bottle, which took an hour to replace (it snaps in).

Even if I had to go to a mechanic, this would have delayed my trip by no more than a day, and cost maybe $300 to replace - well within my $1000 annual budget above.

But of course, many others are not so handy - and many people are afraid of breakdowns "on the road somewhere". Fear is a good selling tool, and not surprisingly, dealers use it to sell cars.

In my experience, however, the "reliability" argument is used by people who want a new car but don't necessarily need one. They get Grandma to co-sign a loan saying "Grandma, I need a new car to get to work! I don't want to break down on the road somewhere and get raped!" And Grandma, finally glad that their granddaughter is "off crack" and "has a job" will fall for this argument, oblivious to the fact that while her 20-something granddaughter is tooling around in a brand-new car, Grandma is driving a 10-year-old Buick.

So no, other than end of design life issues, the "reliability" issue makes no sense. Most modern cars can be run reliably for 10-15 years before they reach the end of the Weibull curve. Selling a car at the five-year mark is just vanity. Leasing every three years, even more so.

The point is not that you should keep your car forever. That is not practical, affordable, or physically possible, in most cases. The point is that the longer you can keep your existing car, the cheaper it is to drive. Constantly trading in cars every 3-5 years results in a lot of excessive costs, both in terms of sales taxes, as well as depreciation and insurance costs.

Thursday, December 27, 2012

What the heck is this Mylife thing? And how do they find out so much information about you?

If you ever google your own name (an exercise in narcissism, but then again, so is a blog), or that of a friend or family member, you will get hits from a website called "mylife". And if you click on the link, you will see some information about you or the person whose name you entered. Some of it is right, some of it is wrong, and it seems alarmingly personal to some folks.

How do they get this information? And what are they doing with it and why? To answer the second question, you need to read this Wikipedia entry about the company, which was formerly Reunion.com, a website for high school reunions. Apparently they want you to "join" the site and perhaps pay a fee. I would recommend neither.

But how do they get this information about you? And should you be worried that personal information is available on the Internet? The answer to the second question is "No" and I'll explain why later. But with regard to the first question, I think you can blame me, in part.

Data mining or data-scraping is how the site gets data. And I prosecuted the Patent for a company that does this sort of work for Ancestry.com and other sites. It turns out that biographical data is formatted pretty much the same on many sites, and smart neural-network type "learning algorithm" can be trained to fetch such data. Train the program to recognize certain patterns and then set it loose on the Internet, and watch the fun begin. So blame me, if you want to. But I think data harvesting and data scraping are here to stay.

What sort of information do they collect on you? Here is my entry on MyLife, apparently scraped from phone books and tax records, and perhaps even obituaries.

Robert Platt Bell was born in 1960. Robert currently lives in Jekyll Island, Georgia. Before that, Robert lived in Jekyll Island, GA from 2005 to 2011. Before that, Robert lived in Ledyard, NY in 2010. Robert Platt Bell is related to Mark See, who is 47 years old and lives in Alexandria, VA. Robert Platt Bell is also related to John Bell, who is 61 years old and lives in Cambridge, MA.

In my case, the information is accurate, although I have run other people's names in the system and found some data inaccurate - claiming relationships to people with the same last name that are not correct. It is interesting that after publishing online all this information that they somehow felt that the last four digits of my phone number should be blanked out. That data is available on the online white pages and a number of other sites and indeed, is on my own website. They have privacy concerns about my address and phone number, but not more intimate information. Weird.

But getting back to "should you be concerned about this information being online?" I would answer "NO" and let me explain why.

First of all, people put up a lot of data about themselves online - a staggering amount and at a startling level of intimacy. So-called self-appointed "Privacy Advocates" scream bloody murder about Google publishing a photo of us walking on a public sidewalk. But at the same time, families put up "family websites" with photos of their children, as well as all sorts of personal information such as when they are leaving on vacation, what time they get home from work, and when little Suzie gets out of swim practice (along with a photo of Suzie in her swimsuit). Burglars, robbers, and pedophiles could have a field day with such data - and yet people post it willingly.

And of course, Facebook, Twitter, MySpace and the like take this whole concept to a new level - and then sell the data to marketers. People willingly "like" their favorite restaurants and products and even sign up to link what they buy to their Facebook page. And then they scream about "privacy".

But in addition to all of that, there is something called Public Records, which are old as the hills and are now available, at least in limited form, online. You may think you have a lot of privacy in your life, but a lot of what you do is public record, and I, or anyone else, has a legal right to those records.

But there are other records that are easier to find - online - without an FoIA request.

For example, property tax records are usually computerized in most Counties - as well as deed data. Usually, the .pdf files of the actual documents are not available online, unless you sign up for a subscription service, or pay a small fee for copies of the documents.

But with the click of a mouse, I can find out how much your house is assessed for, what your property taxes are, and whether you have paid them on time. A few more clicks and I can tell when your parents died and whether they left a will. A few clicks later, and I can find that your no-good brother has an unsatisfied judgement against him. These are all recorded at the public records office of most counties, and the abstracted data is available with a click of a mouse.

And if you order a copy of the will, people can figure out how much you inherited, etc.

Before you get all riled up about this, bear in mind that such public records have been public for generations, and this is not some new "Internet Thing". The Internet just makes such records more easy to retrieve - which may or may not be a good thing.

There is lots of other data you can download online as well. That no-good brother, for example, has a mugshot which can be downloaded from some law enforcement sites. And if your sister went to college, I can download an abstract of her Master's Thesis. The list goes on and on.

And if you are good at Internet searching, you can spend about 20 minutes and pretty much parcel out how people are living, where they are living, what their income level is, and what they are doing. And all of this is without even looking at their Facebook page or their family website, or whatever.

Of course, other sites are also goldmines for data. Newspaper obituaries list relatives of a deceased person and their relationship, which is how MyLife no doubt found my brother (through my Mother's obituary) but for some reason left out my late Sister and other brother. By the way, "MyLife" shows my late sister alive and well at age 63, which is sort of creepy.

Employment websites are another source of data. Many sites have biographies of various employees, particularly if they are professionals, teachers, or the like. With a few clicks, you can figure out where someone has been working, what they did, and what they are doing now. And this is all without having to access LinkedIn, either.

If you "scrape" discussion groups (which you can search on Google) you might find the person commenting on a news story or on a USENET group from back in the day. This data may fill in other areas of their background - their employment history, where they lived, etc. This may also tell you about their political views or personal views on issues. Product reviews can be very illuminating, particularly when the products are books or personal items. You can tell a lot about a person from what they post online, that is for sure.

And if you have their address (which yields all that tax data) you can look at a satellite view of their house on Google Maps, and if they have "street view" you can even see a photo of their house as well as the car in the driveway and its license number (and yes, I have done this, and it is creepy).

Now, it isn't always possible to do this, of course. You need some seed data to start with. If a person has a unique name (Robert Platt Bell, as opposed to Robert Bell) then it is easier to find information on them. A fellow named "John Smith" is harder to search, unless you have a middle name and a city of residence.

The more data you have, of course, the more data you find. If you have a full name, residence, and occupation, even the elusive "Mr. Smith" can be tracked down.

(It is funny, but I knew two couples who work or worked for the CIA, and both had a last name of Smith. Maybe it was just a coincidence, but I always gave them a hard time about it).

So, I would not sweat "MyLife". In fact, I think it is a classic baiting game they are playing. They scrape all this information and package it and get you worried about it. In fact, this seems to be a common theme among a number of sites, such as ZabaSearch and Spokeo. They send you e-mails saying that they have all this personal information about you, and that you should sign up to "opt out" of their site and/or correct the data.

In a way, it is like the "Who is searching for you on Facebook?" scams that claim to be able to track who searches for you on Facebook, or who unfriended you, or whatever. These sorts of pitches seem to hit an anxiety point in a lot of people, who are worried about what people are saying about them behind their back. People, it seems, never really graduate from High School.

Of course, the easiest and cheapest way around this, is to just not give a shit what people are saying about you, or more specifically, what some robot website has scraped about you from public records. Worry more about what you think of yourself than what others think of you.

And don't worry that your life is an "open book" as really there is no reason for secrecy in anyone's life - at least not anymore. While you may think your life is special and private, as Facebook as shown us, most of us lead very similar and dull and boring lives. Everyone's Facebook page looks the same. You are not as unique and special as you might like to think. And being weird and secret about the mundane things in your life is just creepy and a form of self-aggrandizement that shallow people use to make themselves appear to be more mysterious and deep than they really are.

So, don't sweat it. You life is already an open book. And why shouldn't it be? If nothing else, you will leave an electronic trail or legacy after you die - some indication that you existed on this planet. Trying to be "private" really just means that you won't have existed.

Wednesday, December 26, 2012

A lot of people are crying that newspapers are dying - because of the Internet. But the Internet is little more than a format-change. Journalism started dying long before the Internet came along.

The terms "Journalism" and "Journalist" have taken on new meanings in recent years. We tend to think, without thinking, of "Journalism" as "The News" and a "Journalist" as a Newscaster or reporter, or perhaps a writer for a daily paper.

But the terms once had a different meaning. Literally, Journalism referred to keeping a journal, and a journalist as one who wrote for a journal. Mary Chestnut, who wrote a diary of the Civil War, which today is viewed as an amazing historical record, was a Journalist in that regard. She wrote of her life experiences. Samuel Clemens and H.L. Mencken were journalists in the sense that they were people with experiences in life who wrote, not people who set out to be copy writers.

Today, Journalists are cranked out by schools, such as the Newhouse School at Syracuse University. And my brief brush with their sort of "Journalism" as a student was a real eye-opener. What passes for writing, in today's papers and online sites, is often horrifically bad. The idea is to get people to buy papers, or today, to click on stories. Gaudy headlines sell papers or generate click-through revenue. So the idea is to punch up or sensationalize a story.

That is, unless, of course, it might annoy the advertisers or piss off the powers-that-be. In that case, they can turn any story into a series of blandishments that say little or nothing of value, unless you can really read between the lines.

I wrote a story for the Daily Orange once, about a student retreat held by S.U. for "student leaders" (which for some reason, included me). A student had recently been raped by a football player and it made the national news. We wanted to discuss this, but the people in charge nixed it. The Assistant Dean of Students, an old battle axe said to me, "Mr. Bell, what you fail to understand is that the football program brings in a lot of money to the school!"

So there you have it. Anyone in the football program can do as they please - rape co-eds, or apparently in the case of Penn State, abuse 11-year-old boys. Maybe times have changed since then. And maybe they would have changed sooner had the media not been a complicit ally.

I wrote the story, telling what I heard and say. The editor said it was a good story, but I needed to "punch it up with quotes!". That was his line - "punch it up with quotes!" which apparently a professor at Newhouse told him. I thought the one quote - from the Assistant Dean of Students, was punchy enough. But that was the one quote he didn't want to put in. "We don't want to be too controversial" he said, realizing that the school held the purse strings to the student fee, and hence his budget.

So the story got watered down and I walked away from it and asked them to take my name off it. It was published as "Students Leaders Attend Retreat, Discuss Student Issues" with three paragraphs of non-alarming fluff.

That was the drivel coming out of the Newhouse School back then. And since then, it has gotten worse. Today it is all about capturing eyeballs and click-bait. They want you to "stay tuned" for a story that is made to seem more than it is - or get you to click on a story just so they can get click-through revenue. So they put alarming headlines on plebeian stories. You are being baited.

And few media outlets are honest enough to say this. Well, there is one, the Onion. In a recent article entitled, "Please Click on Our Banner Ads" the satirical newspaper stretched irony so far as to expose the underlying truth:

Oh, I'm sorry. Did you think The Onion actually cared about the integrity of its brand? Or that we paid even one single thought to the expectations of our readers? Or that the enduring quality of The Onion's content mattered even in the slightest? Ha! That's rich. No, none of that stuff matters at all. I mean, don't get me wrong, we want tons of people to go to our website and click on our news stories, for sure. But the only reason we want this to happen is so that their eyes might, by chance, wander over, like little lost children, to a nearby ad. You think the New York Times is any different? Don't kid yourself. What you are taking part in here is not a free exchange of information provided by The Onion as some sort of noble act of public service. Lord, no. What you are taking part in here is, essentially, a scam. A scam in which we trick you in to visiting our website and looking at ads so that some large, omnipotent corporation will give us a big stack of cash. Or a small stack of cash. Or, really, any amount of cash at all, preferably arranged in stacks.

By the way, what I just described above is the sole aim of every website on the Internet. Literally, every one of them. It is also the sole aim of every newspaper, every magazine, and every television program. And you—you clueless, literate schmuck—are but a pawn in this game. So just let go. Just accept the fact that you are reading this column right now simply because we can count you as a number on a spreadsheet. You are a pageview, my friend. You are a "monthly unique visitor." One of millions. Nothing more, nothing less.

Tuesday, December 25, 2012

In a previous posting, I opined that Radio Shack might be gone in 2011, as many prognosticators had suggested. It was a Zombie company, the living dead, just waiting for that final shotgun blast to the head.

Note that "revenues" are not profits but merely gross income. Net profit per share at Radio Shack is negative, which means they are losing money.

The earnings trend does not look good. But oddly enough, their revenues are relatively flat, if not trending upward slightly. What is really crazy is that even as the company is losing money, it is still paying dividends!

What is up with that? As I discussed before with regard to dividend stocks, dividends are great, provided the company is making money to pay for them. When a company pays dividends while losing money, the end result is that the company is eating itself.

And the market seems to be recognizing this, as the share price has dropped below $2 - down from as much as $11 in the last year (you have to feel sorry for those who paid that much for the stock!).

What is going on here? Is the company merely failing, or is it being driven into the ground (Bain-style)? After all, if revenues are flat, why are profits (earnings) dropping? Part of the problem might be debt load, part might be tighter margins on newer cell phone products. Part might be poor management and poor cost controls. Or is Amazon taking down another brick-and-mortar store? Or could it be all of the above?

As this article noted, the company's debt rating is in the tank. With about $700 Million in debt, until recently, the company had a pretty hefty load (although according to some sources, the company had, at least until recently, about $500 Million in cash and cash equivalents).

It is hard to know what is going on at Radio Shack, which is a good reason not to bet on it. As I noted in a previous posting about Sears, it can take a long time for a company to finally sputter and die. No company can continue indefinitely with negative earnings. And I for one am not convinced that the company has the cache in the market to attract customers anymore. There is no value in the Trademarks and underlying good will. To my mind, Radio Shack used to mean a place you went to buy resistors and solder - until it morphed into a place to buy cheap radio-controlled cars.

2013 will be an interesting year for a lot of companies like Radio Shack, Sears, J.C. Penny, Martha Stewart, and others - companies that have been hemorrhaging cash and whose business models are outdated or out of style.

It's that time of year again. Time to go see a movie and get Chinese take-out - and run my Annual Credit Report.

Christmas is a dull time, nothing to do except see a movie and get Chinese take-out. Everything else is closed, although this is changing as retailers realized everyone is bored out of their minds staying with family, so they want to go shopping.

Myself, I run my annual credit report - although at this stage in my life, I really don't need to do so, as I have no debts and no need for debt.

(And by the way, if you want your free annual credit report, go to annualcreditreport.com for the real deal, not that faked-up "free" one which is a scam. )

Nevertheless it is an interesting exercise and a good way to monitor for illegal activity involving your credit.

And it provides some insights, too. Profound ones. I came away with several:

1. I took out a lot of mortgages in my life, many of them re-fis. I paid a lot of fees to refinance debts, which was just a way of moving debt around and creating more debt, over time.

2. I had a lot of credit card debt at one time - tens of thousands of it. I am lucky I had the assets to sell to pay them off. Most folks don't. The amount of interest paid, over time, was staggering.

3. I had a mortgage payment of over $2700 a month at one time - on a 30 year note. Do the math on this! The income stream needed to support that debt load was well over $100,000 a year. And for what?

This last item was illuminating. If I had paid off the note on that loan, I would have paid nearly a million dollars, over time, on a loan having a principal of $350,000.

And yet, that is not an unusual amount for a mortgage in many parts of the country. And yet these same people claim they will never be able to save up a million dollars by retirement. But they will pay nearly half that much in interest, over time!

And other folks will say, "Well, it makes no sense to pay off a mortgage or pay it down, as it is tax-deductible interest!" But even if you are in the 35% tax bracket, it only means that you get back maybe $200,000 of this interest expense, over time, on your taxes.

Not paying $2700 a month (I've paid less than that for cars, for chrissakes!) means that I can put aside more and live on far less - two big pluses when heading to retirement.

"But," you say, "Everyone needs a place to live! You have to have a mortgage when you first start out!"

And that is true. But in my case, I didn't "need" a $350,000 mortgage so much as I ended up with one. I started out with a $180,000 mortgage and worked my way up - using home equity loans and refinancing to add to my debt over time (as housing values increased) rather than paying down debt.

This is a familiar scenario to many people - many of my friends and acquaintances - as they lived beyond their means then then paid for it all with borrowed money from phantom equity in their homes.

I was lucky, of course. Or smart, or both. I had equity in investment Real Estate that I could sell and pay off all this debt. This meant, of course, having less "stuff" but it also meant being debt-free.

A lot of folks at my age and station in life are not so lucky. Middle-aged professionals, making the six-figure salary, figure they are "doing OK" as they are making all their bills every month. They owe the bank more on their home that they paid for it, thanks to refinancing. And the term of their mortgage will extend well into their retirement years at this point.

They have to hope that they never lose their job and that their house continues to increase in value, over time, so they can sell it before they retire.

Debt is a trap - a huge trap. If you are already in it, there is not much you can do. But as someone who escaped from that trap by gnawing off their own leg, let me tell you younger folks to think twice before stepping in it. You may not be as lucky as I was.

The economy will improve in the next 5-10 years, and interest rates may remain low. It will be tempting, as your salary increases, to take on more debt for consumer toys, a larger house, or whatever. And when the payments get to be too much, it will be tempting to "refinance" that debt in a home equity loan and then leverage yourself further. This was the pattern for the middle class over the last decade.

Learn from the mistakes of my generation, if you can. Debt is a deadly trap, and there is no easy way out of it. The best thing you can do is avoid stepping in it.